"A company I recently invested in had a reverse/forward split and they gave me all of my money back. What did this mean?" - Marcus (East Lansing, MI)
This is a great question because reverse/forward splits are both relatively unknown forms of stock splits and controversial at the same time. We're not exactly sure when these originated but they've arguably become more popular in recent years.
In short, a reverse/forward split is exactly as its name indicates: it's a reverse stock split followed by an immediate forward stock split. It effectively "cashes out" small investors who own fewer than 100 shares. This is how it works and why it's so controversial:
How a Reverse/Forward Split Works Its name describes exactly what it does--a reverse/forward split begins with a reverse split and is immediately followed by a forward split. For example, companies will begin it with a 1-for-100 reverse split where each 100 shares of stock that a person owns will be converted into 1 share of the new stock. Then, they'll be converted right back into the same form as their original shares via a 100-for-1 forward split.
So if you end up with the same number of shares of stock at the same price as you did before, why do it? Well, if you own fewer than 100 shares of stock, you can't participate in this because you will not qualify for at least 1 share of the new stock through the first step (reverse split). This means that the company will cash out any investors who own fewer than 100 shares--meaning you will be given cash in exchange for your stock.
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